L. Ben Smith & Carol Smith - Page 10

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          percent of the tax required to be shown in the return for the               
          taxable year or $5,000.  Sec. 6662(d)(1)(A).  An understatement             
          is equal to the excess of the amount of tax required to be shown            
          in the tax return over the amount of tax shown in such return.              
          See sec. 6662(d)(2)(A).  The amount of the understatement is to             
          be reduced by that portion of the understatement which is attrib-           
          utable to (1) “the tax treatment of any item by the taxpayer if             
          there is or was substantial authority for such treatment” (sub-             
          stantial authority), sec. 6662(d)(2)(B)(i), or (2) any item if              
          (a) “the relevant facts affecting the item’s tax treatment are              
          adequately disclosed in the return or in a statement attached to            
          the return” (adequate disclosure), sec. 6662(d)(2)(B)(ii)(I), and           
          (b) “there is a reasonable basis for the tax treatment of such              
          item by the taxpayer” (reasonable basis), sec.                              
          6662(d)(2)(B)(ii)(II).                                                      
               The accuracy-related penalty under section 6662(a) does not            
          apply to any portion of an underpayment if it is shown that there           
          was reasonable cause for, and that the taxpayer acted in good               
          faith with respect to, such portion.  Sec. 6664(c)(1).  The                 
          determination of whether the taxpayer acted with reasonable cause           
          and in good faith depends on the pertinent facts and circum-                
          stances, including the taxpayer’s efforts to assess such tax-               
          payer’s proper tax liability, the knowledge and experience of the           
          taxpayer, and the reliance on the advice of a professional, such            






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Last modified: May 25, 2011